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Market Data Bank

Stocks posted a 0.8% loss in the first quarter of 2018, following a +6.6% gain in the fourth quarter of 2017, a +4.5% gain in the third quarter, a +3.1% gain in the second quarter and a +6.1% gain in the first quarter.

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This three-month performance chart is a snapshot of characteristics investors in large U.S. companies preferred in the first quarter.

It's good to know but not very influential in a strategic approach.

In this three-month period, small growth companies were clearly winners, hinting at the gradually growing appetite for risk since the economy climbed back from the financial crisis nine years ago.

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Eight of the 10 sectors in the Standard & Poor's 500 index suffered a loss in the first quarter of 2018.

Only tech and consumer discretionary gained in value. These were the top two performing sectors last quarter, as well.

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Since the bull market began March 9, 2009, the shares of large U.S. companies beat foreign stock markets quarter after quarter, as the U.S. led the world out of a deep recession. Portfolios diversified outside of the U.S. underperformed and some investors bemoaned investing in foreign shares. Last quarter and this one, too, however, foreign indexes beat the S&P 500 stock index. The precepts of modern portfolio theory were proven true. But it took patience. In moments of strategic consequence for investors throughout financial history, humans behave fearfully instead of rationally and based on facts. This is an important way a real financial professional adds value.

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Crude oil topped all asset classes in the first quarter of 2018, with an +8.5% total return. This followed a fourth quarter 2017 return of +16%, and a third-quarter 2017 return of 10%.

The market melted up in January 2018, on euphoria following the December 22, 2017 passage of the Tax Cut and Jobs Act. With valuations stretched, the market became vulnerable to bad news.

Stocks sold off in February, first on a booming January jobs report that stirred inflation jitters and then in March on the President's bellicose trade war talk.

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For the 12 months ended March 31, 2018, shares of large growth companies continued to lead.

Investors' appetite for risk gradually increased in 2017 and 2018, as fundamentals strengthened in the U.S. and abroad.

Large-cap growth, led by the "FAANG" stocks (Facebook, Apple, Amazon, Netflix and Google), which had huge runs in 2015, took a breather in 2016, and resumed their ascent in 2017 and 2018.

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For the 12 months ended March 31, 2018, the technology sector was again the standout. The laggards for the period - telecom, consumer staples, energy, and utilities - are considered more defensive. This is a sign of a gradual shift in sentiment toward riskier assets, a subtle and slow change in investor behavior that is expected to occur in a cycle of economic expansion. It does not mean the cycle is coming to an end, but is something to monitor.

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What a difference a year makes! Twelve months ago - at the end of the first quarter of 2017 - the No. sector was telecommunications service companies. Just a year later, for the 12 months through March 31, 2018, telecom was the worst performing of the 10 Standard & Poor's industry groups.

The same kind of about face was occurred in financials. They were the laggards in the 12 months ended March 31, 2017, but the leaders of the most recent 12-month period through March 2018.

Investor preferences for sectors, styles and asset classes are fleeting and unpredictable. Managing this risk requires rebalancing. For example, rebalancing on March 31. 2017 would have meant lightening up proportionately on the most-appreciated types of assets for the year and buying more in assets that lagged. The exact amount of each asset is established based on a strategic financial plan informed by your personal preferences, age, specific circumstances.

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In the 12 months ended March 31, 2018, foreign regional stock markets outperformed those in the U.S. A global economic expansion gained momentum, and a weaker U.S. dollar helped boost performance of foreign markets relative to U.S. equities.

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European bourses in the 12 months ended March 31, 2017 badly lagged the U.S. and the rest of the world's major equities markets, but the next 12 months were No. 2 on this list. Big shifts in leadership from year to year must be brought back into equilibrium to keep your portfolio aligned with your risk tolerance. Rebalancing is a discipline that requires careful attention, at least annually. It's a service we provide. It's not rocket science, but with retirement assets shifting to IRAs and job-mobility trending higher for many years, rebalancing is more important and more difficult.

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Crude oil and non-U.S. stocks were the best-performing asset classes in the 12 months ended March 31, 2018. Global growth picked up, continuing a pattern in recent months of playing catch up to the U.S. Note how U.S. stocks also posted outstanding results. Synchronicity of U.S. and global growth adds a new dimension not present in this economic cycle until recent months. Stock markets surged.

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After trading sideways for nearly two years in 2015 and 2016 - hitting two frightening dips along the way - the stock market broke out after the November 2016 election. The S&P 500 peaked in early February, then declined in an orderly correction over eight trading days, slightly exceeding the 10% mark that officially made it a footnote in the financial history of the United States.

Over the five years through March 31, 2018, the S&P 500 total return index including dividends gained +87%, compared with a gain of +68% for the oft-quoted S&P 500 price-only index - the 19% difference from reinvesting dividends

This is the second-longest bull market in modern U.S. history and is closing in on July 2019, when it will break the record to become the longest expansion in modern-day U.S.A. Economic fundamentals as the second quarter of 2018 began were very strong by historical standards. However, the chances for a bear market correction of at least 20% increases as the bull market grows older.

None of the fundamental conditions that have signaled bear markets in the past are present as the second quarter of 2018 got under way. Historically, restrictive Federal Reserve policy, slowing signs of growth, stock market overvaluation, or irrationally exuberant valuations for stocks, are not evident. In the past, these fundamentals have preceded bear markets and recessions. Past performance is not a guarantee of future results, but the facts are plain sense.

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Large-cap growth stocks were in first place for the five years ended March 31, 2018, largely propelled by a rally in the technology sector in 2017 and 2018.

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The five year returns of the 10 Standard & Poor's sectors show the outsized performance of tech shares, which gained 156%. Apple, Microsoft, Facebook and Google, because of their earnings growth, were bid up in price. Conversely, for the five years ended March 31, 2018, the lagging sectors were mainly those where earnings growth lagged the growth sectors of the economy.

Financials' strong five-year performance reflected a steady recovery from the deep losses they suffered in the 2008 global financial crisis.

The energy and material sectors, of course, got slammed by the collapse in crude oil and most other commodity prices. The price of crude oil, while up over 100% from its early 2016 bottom of $26 per barrel, was still only half of its peak price of 2014 of $114 per barrel.

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For the five years ended March 31, 2018, what stands out is how the U.S. indexes ? small- and large-cap ? outperformed rest-of-world by a substantial margin even after the surge in non-U.S. markets that occurred after the first quarter of 2017.

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The S&P 500 index's total return of +87% in the five years through March 31, 2018, was more than double the +40% return on the S&P Global ex-U.S. stock market's return of +40%. The U.S. economy snapped back after the severe global recession stronger than other economies, large and small. The broadening of the U.S.-led recovery synchronized growth in foreign economies with the U.S. expansion for the first time in years, and this has boosted returns of portfolios diversified broadly across the globe.

However, the five years were not good for crude oil and other commodities. Crude oil prices plunged in 2016 because new drilling technology enables the U.S.to produce enough oil to increase supply and keep prices lower. A strong U.S. dollar, low rate of inflation, and ample supply made commodities money-losers over the five years.

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Ten years ago, the economy was bleak.

The U.S. was in a recession. The subprime mortgage crisis was undermining Bear Stearns, Lehman Brothers, Countrywide Financial, AIG, and other major financial institutions; General Motors looked like it might go out of business.

Then, in a story for the ages, the nation came back from the financial crisis and led the world out of The Great Recession.

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Over the last 10 years, a dollar invested in America's 500 largest public companies grew to two dollars and forty eight cents.

From the stock market's low point on March 9, 2009, a dollar grew four and three-quarter times in value, to four dollars and seventy two cents ? a 372% return!

For the past decade, what makes America exceptional among all nations has been unfolding in plain sight.

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Yet, as clear as American exceptionalism has been for the last 10 years, it's always difficult to recognize it in real-time, when it is happening, or that it might be happening right now.

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Stocks gained a robust 14% in the 12 months through March 31, 2018, but there was a 10.2% correction in early February.

Stocks sold off ? first on a booming January jobs report that stirred inflation jitters and then in March on the President's bellicose trade war talk.

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Volatility is up and stocks posted a loss of eight tenths of 1% for the first quarter of 2018.

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On April 8, this story about cracks forming in global growth appeared in The Wall Street Journal, warning that we're on the verge of a long period of weakness.

But key economic facts went unseen by the nation's leading financial newspaper ? facts in plain sight beyond the volatility and stormy headlines of recent weeks.

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The 58 economists surveyed in early March by The Wall Street Journal hiked their forecast for growth.

In February, they had predicted average quarterly growth of 2.7% for the five quarters through the first quarter of 2019, but upped it in March to 2.9%.

The average growth rate of the U.S. since the expansion started in March 2009 is 2.2%, so the expected growth rate is a 35% improvement over the long-term trend.

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The recent release of the U.S. leading economic indicators for March showed remarkable strength, continuing to surge past the highest point of the last expansion.

This key forward-looking composite of 10 indicators points to solid growth for the rest of 2018.

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The article in the nation's most respected financial daily shows the human penchant for missing what's happening around us, how our brains are wired to be so focused on immediate threats that we cannot fathom getting beyond them.

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Despite the frightening headlines lately, increased market volatility, and weak returns on stocks in the first quarter, very strong economic fundamentals remain in place.

We're here to help you stay focused on what's important in managing your money for the long run.

Mark H. Kaizerman is a Registered Representative of and offers securities, products & advisory services through Royal Alliance Associates, Inc., member FINRA/SIPC, a registered broker dealer and registered investment advisor. In this regard, this communication is stricly intended for individuals residing in the states of California, Florida, Maine, Massachusetts, Michigan, New Hampshire, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island, South Carolina and Virginia. No offer may be made or accepted from any resident outside the specific states referenced.